»Comment: This foolish plan to pay BG chief £25 million must be voted down

Comment: This foolish plan to pay BG chief £25 million must be voted down

Comments Off on Comment: This foolish plan to pay BG chief £25 million must be voted down

The timing of her exit caused shares in Thomas Cook to fall by 20% within a few hours. Chief executives come and go, but this case demonstrates above all else the impact that an outstanding one can have on a company’s share price.

If a departing chief executive can have such an impact on share value, so too can the search for a new one.

The heavy-handed nature of BG Group’s decision to propose a pay deal for new chief executive Helge Lund of £25 million has made headlines this week, and it’s not hard to see why.

The proposed deal is representative of much that is wrong with corporate Britain. Lund is an inspirational leader, and has done wonders with his current company, Statoil, but his proposed pay deal is excessive and inflammatory. On its own, the figure is incomprehensible to most people. By comparison to other FTSE chief executives, it is enormous.

However, the central issue here is one of corporate governance and shareholder rights. BG’s decision to a call an extraordinary general meeting in order to slip through a deal that dismantles pay arrangements voted for by shareholders just six months ago is completely unacceptable.

The board of BG knows just how much a good chief executive matters, and, as demonstrated by Green’s departure, a surprise departure can have a devastating impact on share value. BG knows that if Helge withdraws from the running, or is rejected by shareholders, the share price will drop significantly.

All this puts fund managers over a barrel. It cannot be right to have shareholders and investors in a position where, unless they approve excessive pay way beyond agreed policy, their shares will fall in value.

Crucially, this whole debacle risks setting an appalling precedent. If the pay deal is approved on 15 December, chief executives and other executive directors will be able to hold out for pay settlements beyond the remuneration policies agreed by shareholders, whether binding or not.

Fund managers have a duty to protect the integrity of corporate governance arrangements and this ought to compel them to vote against Lund’s pay deal. It isn’t good enough to abstain from the vote. They must put down a marker.

Should the deal pass, those sectors of society that have been ultra-critical of corporate Britain for so long will surely call for legislation to restrict chief executive pay.

This needs to be avoided at all costs. The power to set corporate policies should rest with shareholders and fund managers. Much depends on December 15, and I hope that fund managers do the right and proper thing and say no to this inflammatory pay deal.

If not, the consequences won’t be pretty. With an election looming, politicians — many of whom have, admirably, given the benefit of the doubt to the UK’s relatively light-touch governance code — will point to a £25 million pay packet and use it as a stick with which to beat corporate Britain.

Calls for legally binding pay ratios will grow louder. Politicians will compete with each other to decry the excesses of those at the top, and the whole sorry affair will be of BG’s own making. The vote will either represent the primacy of shareholders, or the way in which they can be manipulated.